The Australian Prudential Regulation Authority (APRA) has published a letter to all Registrable Superannuation Entities (RSEs) about its criteria for determining whether a RSE licensee’s business operations are appropriately positioned for future effectiveness and sustainability in an increasingly competitive industry environment.
APRA’s view is that it is not sufficient for an RSE licensee to simply comply with their legislative and prudential obligations without giving due consideration to how their RSE will deliver quality outcomes for members now and into the future. This would include consideration of whether insurance offerings may be inappropriately eroding member retirement benefits.
The metrics for APRA’s assessment of historical outcomes and future sustainability include:
- net returns, on an absolute basis and relative to risk/return targets;
- costs per member for MySuper products;
- cost of insurance cover;
- administration and operating expenses as a percentage of average net assets (operating cost ratio);
- net cash flows as a percentage of average net assets (net cash flow ratio);
- net member benefit outflow ratio;
- net rollovers as a percentage of average net assets (net rollover ratio);
- trends in membership base; and
- active member ratio.
APRA says its has identified RSEs which, in APRA’s view, appear not to have consistently delivered quality member outcomes in the recent past, may be unlikely to deliver quality member outcomes in the future and/or may not be sustainable into the future.
APRA will soon write to each of the RSE licensees identified as a result of APRA’s assessment to request their respective Boards to meet with APRA to discuss our assessment. These RSE licensees will be required to develop a robust and implementable strategy to address identified weaknesses within a reasonably short period and to engage more regularly with APRA to monitor the implementation of that strategy.
When it is clear that a particular product or RSE is unlikely to be able to continue to operate in the best interests of its members, APRA expects the relevant RSE licensee to act to ensure a timely and well-managed transfer of members to another suitable product or RSE, either within the RSE licensee’s own operations or those of another RSE licensee.